A new Scottish income tax.....

For those of our client’s that are resident north of the border, in bonny Scotland, they may be interested to learn that a new rate of income tax may apply to them from 6 April 2016.


Under the Scotland Act 2012, the UK income tax rates will not apply to Scotland. Instead, the UK element of the income tax will be set at ten percentage points lower than the rest of the UK. The Scottish Parliament will then set a Scottish rate which will be added to the UK element.

What will the rates be?

For instance, the current UK earned income tax rates are 20%, 40% and 45% depending upon the level of income. These will initially start at 10%, 30% and 35% before the Scottish rate is set. If for example the Scottish rate is set at 9%, then the total tax rates would be 19%, 39% and 44%. If the rate were set at 11%, then the rates would be 21%, 41% and 46%.

The bands will be known as the Scottish base rate, Scottish higher rate and Scottish additional rate.

Whilst the Scottish % rate can vary, it can only set one rate to add to every band of income. It could not say add 9% to the basic rate, 12% to the higher rate and 14% to the additional rate. Whatever the rate is determined to be must be the amount added to each rate.

Other areas of impact

·         The personal allowance will remain as set by the UK Government and most other tax rules remain the same.

·         This will clearly impact employers as all payrolls must operate the Scottish income tax rates for Scottish residents, regardless of where the employer is based. This could have a huge burden upon business in the North East and North West where Scottish resident individuals may commute to a workplace in those areas.

·         Partnerships who accrue tax charges in their accounts may be affected as a Scottish resident partner may pay income tax at a different rate from his or her English partners.

·         Charities are unlikely to be affected initially from a donations perspective as the UK rates will be retained for charitable giving by Scottish residents i.e. a person gives £80 and a charity claims £20 from HMRC. However, should there be significant divergence from the UK rates, then we would expect this to come under review.

However, VAT and corporation tax should be unaffected for the time being.

For further information on the upcoming changes or answers to any specific queries, please contact your designated office who will be delighted to assist.